- Scalable zero-emission fuels like e-ammonia and e-methanol hold the greatest promise to meet the shipping sector’s 2040 climate goals, requiring rapid development of their value chains within the next decade.
- Long-term cost analysis predicts dual-fuel LNG-ammonia ships will be most cost-competitive until the mid-2030s, with ammonia taking the lead from around 2037.
- New global fuel intensity targets and penalties establish a framework for investment, but targeted rewards and increased penalties for non-compliance will be crucial to drive timely adoption.
A recent insight brief by the Getting to Zero Coalition and the Global Maritime Forum examines the implications of the International Maritime Organization’s (IMO) new policy measures on the maritime fuel transition. Based on total cost of ownership (TCO) modelling by UMAS and UCL, alongside over 30 stakeholder interviews, the brief highlights the role of the IMO’s global fuel intensity (GFI) factors and penalties in shaping the sector’s future investments and operations. These measures position shipping as the first industry with globally binding greenhouse gas regulations and emissions pricing.
The analysis reveals that while multiple compliance pathways exist, increasing GFI stringency and escalating penalties will progressively favor scalable zero-emission fuels, steering the industry away from fossil fuels such as liquefied natural gas (LNG) toward e-fuels derived from green hydrogen. The transition’s success hinges on early uptake and value chain development to achieve commercial viability.
Jesse Fahnestock, director of decarbonisation at the Global Maritime Forum, said:
“The IMO’s new framework is a historic step forward, but unless e-fuels become competitive early on, there is a risk that the sector will run into bottlenecks as its decarbonisation efforts scale up. The industry can no longer afford to do nothing.”
Cost Competitiveness of Ammonia and LNG
TCO modelling indicates that dual-fuel vessels running on LNG and ammonia will be the most cost-effective choice before the mid-2030s, with ammonia becoming the cheapest option from about 2037. This trend is primarily driven by blue fuels (hydrogen produced from fossil fuels with carbon capture), as synthetic e-fuels currently lack sufficient incentives before 2040.
Without targeted incentives, conventional fuels are projected to become significantly more expensive than LNG and ammonia within the next decade. LNG will hold the lowest cost advantage between 2030 and 2035, potentially extending to 2037 with onboard carbon capture and storage, while blue ammonia is poised to dominate cost competitiveness thereafter.
Given the long lifespan of these vessels, early orders of dual-fuel ammonia ships are a strategically sound decision. However, ensuring the timely readiness of scalable e-fuel alternatives requires IMO guidelines that include rewards to enhance their competitiveness today.
Fahnestock added:
“When considering the long-run demands of decarbonisation, ordering dual-fuel vessels capable of running on e-fuels already looks like a smart decision. But future adjustments to the policy can do a lot to encourage investment in e-fuel production facilities.”
Challenges and Policy Recommendations
Stakeholder interviews suggest many industry players are adopting a “wait and see” strategy, focusing on short-term cost optimizations like running conventional vessels on drop-in biofuels or LNG, while deferring investments in zero-emission options due to uncertainties in regulation, fuel availability, and commercial risks. Nonetheless, some companies are pursuing long-term strategies by ordering dual-fuel vessels to leverage the new framework.
The IMO’s policy sets tiered GFI targets for 2028–2035 and 2040, featuring a “base” less stringent line and a “direct compliance” more stringent line that vessels must meet to avoid penalties. Ships can comply through fuel switching, paying penalties via remedial units (RUs), or purchasing surplus units (SUs) from over-compliant vessels. Financial rewards will be provided to vessels using zero- or near-zero-emission fuels, though specifics are yet to be finalized.
Fahnestock concluded
“We now have a regulatory foundation, but further developments and adjustments are needed if e-fuels are to become viable at an early enough stage to realise the industry’s decarbonisation ambitions. While doing nothing is no longer an option, the rules still need to be shaped in a way that incentivises the investments needed for shipping’s future.”
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Source: Global Maritime Forum
